Ultimate E-Commerce Operational Cost Reduction Strategy Guide
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Ultimate E-Commerce Operational Cost Reduction Strategy Guide

Reading Time: 6 minutes(Last Updated On: October 18, 2020)

Want to make more money? Then start spending less! If we sound a little bit like your parents telling you to “save for a rainy day”, we’re here to say they were right!

All jokes aside, there are plenty of e-commerce businesses out there wishing they could expand but don’t have the resources to do so. While you can also turn to e-commerce business loans to help clear the financial hurdles to grow your business, cost reductions are often a better place to start.

Not sure where to begin? Keep reading to learn how to reduce your business costs and how that can help you build a better business.

 

How to reduce business operating expenses

Before you can start with business cost reduction, you need to first identify what your business costs are and which of those expenses have room for improvement. This may seem like a tricky task at first glance, but it’s simply a matter of following the right steps.

First off, you’ll want to list out all of your e-commerce business’s operating expenses and provide details including what the expenses are, how much they cost, the value they bring back to your business (ROI), how long you’ve been paying those expenses, and any other relevant information.

Once you’ve completed the list of your business’s operating expenses, you’ll want to then prioritize them in order to determine whether how necessary they are for the successful operation of your business. One of the easiest ways to measure the necessity of your business’s operating costs is to measure the ROI for each expense. With those ROI values listed, you can get a better idea of where you should look for opportunities to make business cost reductions.

If you have business expenses that you identify as ‘nice-to-haves’ (low ROI’s), you’ll definitely want to find ways to reduce those costs and perhaps even consider doing away with them completely. For those expenses that you deem to be more necessary (higher ROI’s), you should still start working on developing cost reduction strategies (see more on that below).

Before we move on, here are a few resources you’ll find useful for identifying dispensable expenses:

6 Common E-Commerce Business Expenses

What is Permanent Working Capital?

What Is the Formula for Calculating Profit Margins?

 

Where to reduce operational costs

  1. Remove unnecessary services
  2. Focus on quality
  3. Negotiate with suppliers
  4. Consider dropshipping
  5. Adjust your marketing strategy
  6. Go green[er]
  7. Reevaluate your cybersecurity plan
  8. Adopt automation when possible
  9. Outsource, outsource, outsource.
83% of online shoppers say they require some form of #customersupport during their #ecommerce shopping experience, proving just how important high-quality support is! Click To Tweet

 

1. Remove unnecessary services

This cost reduction strategy makes the very top of the list for obvious reasons. “Trimming the fat” can go a long way after all! If you have any operating expenses that aren’t entirely necessary for the viability of your business, they should be placed as a lower priority and only kept in the budget if there’s room after the more important expenses are covered.

Unnecessary services could include things like hosting weekly happy hours or having office yoga lessons once a month. While they’re definitely nice to have and can help build team solidarity, they still aren’t crucial to the survival of your business.

 

2. Focus on quality

Avoid the mistake of just ‘getting by’ with products and services that are simply ‘good enough’. High-quality items and high-quality customer support won’t only help reduce returns, refunds, and dissatisfied customers – they’ll also help with your goals for operational cost reduction. It may cost your business a bit more time, attention, and money in the short-term, but it will help save you more money in the long run.

Fun fact: 83% of online shoppers say they require some form of customer support during their online shopping experience, proving the importance of high-quality support.

 

3. Negotiate with suppliers

Over time if you’re able to prove to your suppliers that you’re a strong seller, you can gradually build a closer and more reliable relationship with them. But that relationship works as a two-way road; suppliers need your business as much as you need their services.

Use your history as an efficient e-commerce store as a bargaining chip to negotiate for better prices from your suppliers. At the end of the day, they don’t want to lose your business (particularly if you’re good at selling their products!). There’s nothing wrong with using your expertise as part of your operational cost reduction strategy.

online inventory management system

 

4. Consider dropshipping

If cost reduction is what you’re aiming for, dropshipping is one of the best ways to go about it. Since dropshippers don’t actually store any inventory themselves, they save a ton of money that would otherwise be spent on owning, running, and maintaining a warehouse (or even several warehouses).

In a more general sense, dropshipping is a favored e-commerce model because it has very low overhead costs compared to other types of e-commerce businesses, a limitless number of products you can potentially sell, and lots of flexibility when it comes to management.

 

5. Adjust your marketing strategy

Having an e-commerce advertising strategy in place to bring in more customers should almost certainly rank as high-priority on your list of business expenses. But maintaining an effective marketing strategy doesn’t have to run up against your plans for business cost reduction!

There are two e-commerce marketing strategies that we recommend also including in your list of cost reduction strategies: SEO (search engine optimization) and email marketing campaigns. We’re not just saying that either – SEO and email marketing campaigns are both staples of Become‘s marketing strategy.

Why? Because SEO is completely free and is proven to be more effective than pay-per-click advertising in search engines. And because email marketing consistently ranks as the most cost-effective type of online marketing with a median ROI of 122%. Enough said.

 

6. Go green[er]

Cost reduction can actually go hand-in-hand with reducing your business’s carbon footprint. Naturally, e-commerce businesses are more sustainable than many (if not most) offline businesses just by virtue of the fact that they use fewer utilities, take up less space, and create much less waste.

Those differences also have a direct impact on the number and size of expenses that your business pays – so what can you do green your business even more? Start investing in appliances that are designed to be more energy-efficient. Even better, save electricity by not only turning off appliances when you log off at night but actually unplugging computers and other machines if possible. Use natural lighting if your workspace allows for it.

Bottom line: Environmental consciousness isn’t just about saving the natural beauty of our planet – it can also be a factor that plays into your business cost reduction plan.

 

7. Reevaluate your cybersecurity plan

Do you currently have a small business cybersecurity plan? If not, you should take into consideration the fact that the average cost of a cyber attack on a small business comes out to be roughly $35,000. Implementing a cybersecurity plan could end up saving you a significant amount of time, stress, and money.

On the other hand, if you already have a cybersecurity plan in place, it’s still possible to incorporate cost reduction into that plan. See what sort of price negotiations can be made with cyber security service providers; educate employees on how to take cybersecurity into their own hands; back up your data on a regular basis so as to avoid major losses if there ever is a system breach.

Grow Profits

 

8. Adopt automation when possible

Operational cost reduction can be done by employing the power of technology. That doesn’t necessarily mean firing employees and replacing them with robots. In contrast, you can give your team members a real upper hand by providing them with advanced tools to help streamline their work.

You can integrate automation to help reduce online shopping cart abandonment, respond to reviews, organize customer support tickets, and much more. Automation as a cost reduction strategy can also help maintain that high-quality customer service mentioned earlier on the list.

 

9. Outsource, outsource, outsource

Running an online business means that you can outsource a great number of items on your list of business expenses. Much (if not most) of the time, outsourcing services will be cheaper than keeping an employee on payroll to fill a role that only needs filling on an occasional basis. Curious which services your e-commerce business can outsource?

Here are just a few examples:

  • Bookkeeping
  • HR
  • Customer service
  • IT
  • Lead generation
  • Payroll processing

 

How business cost reduction can help your e-commerce store stay competitive

Saving money is always a nice thing – who doesn’t like an extra buck here and there? But that’s not the bottom line for businesses using cost reduction strategies. Indeed, the real goal of business cost reduction is to increase your business profit so that you can continue growing your business and stay ahead of the competition. The best way to do this is to track all your business profits and expenses using a tool like BeProfit for example. 

Reducing costs will help you increase your business’s revenue, put more money into lead generation, reduce your business’s pricing strategy, and more.

All-in-all, operational cost reduction will give you more fuel to keep the engine of your business running at full capacity. It’s a self-reinforcing cycle where cost reductions save you money that you can then use to grow your business bigger and stronger so you can make even more money, and on and on. Put these cost reduction strategies to work today and start building a more successful e-commerce business!

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Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. The author accepts no responsibility for any consequences whatsoever arising from the use of such information.